litha maria de los angeles slaps two cheese-filled pupusas – the Salvadoran cornmeal flatbread – on the griddle. with a camera, click on the qr code, you receive your payment: four hundred thousandths of a bitcoin. then, as the rain hits the corrugated iron roof and a gust of wind lifts the blue plastic tablecloths, the power goes out.
A tumultuous few weeks await El Salvador as it prepares to become the first country to adopt Bitcoin, the world’s most popular decentralized digital currency, as legal tender on September 7. With that deadline approaching, a host of challenges – technological, financial and criminal – threaten to sink President Nayib Bukele’s plan to lift the Central American economy out of its current choppy waters on the back of a wave of cryptocurrencies. /p>
el zonte, a surf town with some 3,000 inhabitants and a beach of black sand and pebbles, is an unlikely place for a global financial revolution. But since 2018, the city’s bitcoin beach project has been a petri dish for cryptocurrency adoption. Backed by Californian donors, the project awarded $50 (£36) worth of bitcoin to each local family, encouraged cryptocurrency adoption by local vendors and paid for dozens of social projects, from lifesavers to garbage collection.
Reading: Skepticism tender el pioneering adopt bitcoin
“Now you can buy groceries, pupusas or pay for your internet with bitcoin,” says José Roman Martínez, 30, one of the founders of Bitcoin Beach. “For many people, this is the first time they have received a digital payment.”
Interest in the project from crypto-savvy tourists has given El Zonte a new lease of life and led to a real estate boom in the city, according to Martínez. “When he was a kid, all Salvadorans wanted to do was cross the border and head to the United States. Now the children here dream of better things.”
Can a circular economy experiment backed by a handful of foreign crypto evangelists be replicated nationally? Salvadorans haven’t had a say in the matter so far, but they’re about to find out.
Bukele announced his plan to make bitcoin legal tender in June (a month before his 40th birthday) with his usual millennial momentum: via a video link to a cryptocurrency conference in Miami. Since then, as elon musk with a presidential term, he has prolifically released bitcoin memes and promises on his twitter account.
Only five days after the announcement, legislators approved the bill by a large majority. A national digital wallet called chivo – local slang for “cool” – is being developed with $30 worth of bitcoins loaded into each as an initial balance. bitcoin transactions will be exempt from capital gains tax, and foreigners who invest three bitcoins in the country (around $120,000) will be granted residency.
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in august, a bank of america research note raved about the new law’s ability to reduce the cost of cross-border transactions (remittances represent 20% of el salvador’s gdp), increase digital penetration in a country where 70% of the people still do not use banks and attracts foreign investment as a pioneer in the adoption of cryptocurrencies.
Since then, however, the verdict of international financial organizations -and of Salvadorans themselves- has turned decidedly pessimistic.
“The law was adopted extremely quickly, without a technical study or a public debate,” says Ricardo Castañeda, a local economist. “I don’t think the president fully understood the implications of the law, its potential to cause serious macroeconomic problems and turn the country into a haven for money laundering.”
the regulatory framework for the adoption has not yet been published and there are rumors of delays in the chivo application. bankers in the capital say they have received calls from anxious clients threatening to withdraw their deposits rather than risk the volatile cryptocurrency markets.
Moody’s rating agency downgraded Salvadoran debt for fear of a “weakened government” evidenced by the new law, and the IMF, with which the government is negotiating a $1 billion loan, published a publication blog highlighting the risks of adopting cryptocurrencies as the national currency. currency.
“The change from euphoria to skepticism has been very rapid,” says Castaneda.
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The potential benefits identified by Bank of America are likely overstated. A Johns Hopkins University paper says the cost of remittances via bitcoin will be higher than traditional methods, and a July survey found nearly two-thirds of Salvadorans would be unwilling to accept bitcoin payments.
Eric Grill, CEO of Chainbytes, which produces Bitcoin ATMs, told the Guardian that his plan to move manufacturing to El Salvador had faced serious challenges in sourcing parts. Local geothermal energy experts say Bukele’s plan to boost energy-intensive Bitcoin mining from the country’s volcanoes is wildly optimistic.
The government insists that Salvadorans will be able to freely exchange their bitcoins for US dollars, which the country adopted as its national currency in 2001, and has proposed a $150 million fund to guarantee convertibility. however, given popular skepticism, critics say this is unlikely to be enough. it would also open the door for illegal actors to convert bitcoin, which rose to fame on the silk road, an online black market, and prides itself on the anonymity of transactions, into dollars through a national bank and thus launder your earnings.
Perhaps the biggest concern, however, is that it exposes a financially ill-educated population, for the most part, without an economic safety net, to the fate of the highly volatile cryptocurrency markets.
“The bitcoin law essentially plays with two public funds, that of the government of El Salvador and that of the IMF,” says Daniel Munevar, a Colombian economist focused on debt justice. “It’s one thing for an American to gamble their stimulus check on cryptocurrency in hopes of making a big profit, but this is yolo [you only live once] investing domestically.”
In the zonte, locals are developing their own common sense investment strategies. Dominga Peña sells minutas -cups of shaved ice flavored with fruit syrups- on the beach.
says one in 10 customers pays with bitcoin and she keeps most of it as an emergency fund for small purchases. “The bitcoin beach folks explained the benefits and drawbacks [of receiving crypto payments],” she said. “It changed my mindset to invest, but I wouldn’t keep too much money in bitcoin. the price has gone up and down a lot lately.”
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